Direct Marketing Association, The v. Huber

Filing
70

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
The Direct Marketing Association,
)
)
)
)
)
)
Plaintiff,
vs.
ROxy Huber, in her capacity as
Executive Director, Colorado
Department of Revenue,
Civil Action No:
10-CV 01546
REB-CBS
)
)
)
)
)
)
Defendant.
---------------------------------)
DEPOSITION OF DIETER GEORGE GABLE
Phoenix, Arizona
November 17, 2010
(Copy)
Prepared by:
Meri Coash, RMR, CRR
Realtime Reporter
Certified Reporter #50327
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
1
12
apologize for interrupting.
2
What is the business of Finance Law Center?
3
A.
HR sourcing.
4
Q.
Meaning that you place employees with --
5
A.
People.
6
Q.
-- with other companies?
7
A.
Yes.
8
Q.
You said "Law Center."
9
10
11
12
13
It there a particular
type of company for whom you place employees?
A.
For attorneys and in the area of experts for
mortgages, mortgage-related matters.
Q.
Okay.
The experts, though, they're intending to
be employed?
14
A.
Contract.
15
Q.
Contract.
16
A.
HR placement.
17
Q.
I see.
Okay.
So temp, sort of?
18
19
A.
Yes.
20
Q.
Okay.
21
All right.
Any other actively operating
LLCs?
22
A.
Next Step Advisors.
23
Q.
Okay.
24
A.
Yes.
25
Q.
And where is Next Step Advisors located?
LLC?
Co ash & Co ash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
A.
Nevada.
2
Q.
All right.
3
A.
2003.
4
Q.
You're currently a manager of that?
5
A.
Yes.
6
Q.
What is its business?
7
A.
That's how I run any consulting work for myself
8
primarily.
9
Q.
13
Operations in Arizona.
When was it founded?
Have you engaged --
Does Next Step
10
Advisors, LLC, have any part in your engagement in this
11
case?
12
A.
No.
13
Q.
SO what type of consulting,
14
15
then, would you be
managing for yourself through Next Step Advisors?
A.
Example would be work I did for the Colorado
16
lottery.
Essentially work outside of the scope of what I
17
would do as TB Consulting.
18
Q.
Do you have partners in TB Consulting or other --
19
A.
In TB Consulting?
20
Q.
Yes.
21
A.
Yes.
22
Q.
Okay.
23
A.
One.
24
Q.
How many other people are principals, if any, in
25
How many other folks are principals of --
AZ Merchant Partners?
Coash & Coash, Inc. 602-258-1440
14
Dieter George Gable - November 17, 2010
1
A.
One.
2
Q.
Is it the same person?
3
A.
No.
4
Q.
Who is it for TB?
5
A.
Marcus Sipolt, S-i-p-o-I-t.
6
Q.
And for AZ?
7
A.
Shannon, S-h-a-n-n-o-n, Bard, B-a-r-d.
8
Q.
All right.
9
Other than Finance Law Center and
Next Step Advisors, any other actively operating LLCs?
10
A.
I don't believe so.
11
Q.
Okay.
Now, you mentioned that there were some
12
that are not actively operating but may still be in
13
existence based on Arizona's treatment of LLCs.
14
inactive LLCs, are you currently a manager of any inactive
15
LLCs?
So
16
A.
Yes.
17
Q.
Okay.
18
A.
I don't even know the exact names of them.
Which ones?
19
would honestly have to look that up.
20
I
I can give you my
best approximation and my best list of them, but
21
Q.
Okay.
22
A.
I honestly was not prepared for this part of --
23
24
25
That's fine.
what you were looking for.
Q.
Okay.
Give me your best list.
That's all I can
ask for if that's the best you can do.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
1
all the different variations of that.
2
IntelliChoice Home Services.
3
iteration of that.
4
5
6
There's also
There might be one more
I don't know.
I don't recall.
When you say "different iterations," does that
Q.
mean -A.
17
Are they dbas?
No.
Are they --
They are different --
IntelliChoice
7
Mortgage Services was the main one.
8
were meant to branch off, but those were never -- we never
9
did anything with them.
10
11
Q.
Okay.
And then other ones
When did IntelliChoice Mortgage
Services, LLC, come into existence?
When was it founded?
12
A.
2005.
13
Q.
And where was it located?
14
A.
Phoenix.
15
Q.
What was its business?
16
A.
Mortgage origination.
17
Q.
What does that mean exactly?
18
A.
So mortgage origination and loan modifications.
19
So mortgage origination for the vast majority of that
20
time.
21
get your financing, that's considered mortgage
22
origination.
23
whoever they broke red it out to, Wells Fargo or
24
Fannie Mac (sic) and so forth.
25
doing mortgage origination.
And that's --
When you go to a mortgage broker to
So the company was doing that on behalf of
Those are mortgage brokers
Co ash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
A.
I don't think so.
2
Q.
21
When did mortgage -- IntelliChoice Mortgage
3
Services, LLC, stop operating?
4
A.
2009.
5
Q.
Okay.
6
A.
It's a very long story.
And why did it discontinue its operations?
Bottom line is we did an
7
acquisition of a firm in California in the business of
8
loan modifications.
9
Q.
Okay.
10
A.
And we were licensed through the California --
11
it's CFL.
12
what it's called.
It's a corporation finance license, I think is
13
Q.
Okay.
14
A.
Because California has two ways to license
15
mortgage brokers.
One is through the Corporation
16
Commission with a CFL license.
17
Department of Real Estate with what they call a DRE
18
license.
The other is through the
19
Q.
Okay.
20
A.
After
21
Q.
I was just going to ask, when was the acquisition
22
I'm sorry.
Go ahead.
of this company in California?
23
A.
I believe late 2008 or early 2009.
24
Q.
And what was that firm called?
25
A.
Mantis, M-a-n-t-i-s, Inc.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
22
1
Q.
Okay.
2
A.
San Diego.
3
Q.
Was the acquisition of Mantis the manner in which
4
5
6
Where was it located?
you began doing business in California?
A.
No.
That's the manner by which we expanded into
loan modifications in California.
7
Q.
Okay.
8
A.
Mortgage originations.
9
Q.
In California?
10
A.
Yes.
11
Q.
Okay.
12
Prior to that, you were doing --
And was Mantis doing business in any other
states than California?
13
A.
I don't believe so.
14
Q.
Okay.
15
16
After the acquisition, what happened with
regard to the business of IntelliChoice?
A.
The state of California changed the rules as to
17
who was allowed to do loan modifications from allowing
18
either a CFL or a DRE licensee to only DRE licensees.
19
applied for a DRE license and for an approved contract to
20
do loan modifications, which they called an advance fee
21
agreement.
22
We
We were granted the license and the contract.
The legislature passed -- California
23
legislature then passed -- and I don't remember the exact
24
act, but I believe it might have been -- I should probably
25
remember it better.
SB 1902 is my best guess as to what
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 20 I 0
1
23
the number was.
2
Q.
When was this?
3
A.
This would have been summer of '09, June of '09,
4
somewhere in that time frame.
They passed that act which
5
made any advance fee agreement void, including the ones
6
approved by the state under our license.
We had completed about 1,200 loan
7
8
modifications, and we had, I am thinking, about 500 called
9
in flight or in process.
And essentially, we had to
10
refund the money to those people, and that put us out of
11
business.
12
Q.
Okay.
When you said --
When you were using the
13
term "we,ll was it including we with regard to applying for
14
a DRE license?
15
license?
Who is the "we" that applied for a DRE
16
A.
My partner Shannon Bard and I.
17
Q.
And you obtained such a license?
18
A.
Yes.
19
Q.
When did you get your DRE license?
20
A.
Spring of '09.
21
Q.
Okay.
22
Maybe March time frame.
Did the firm need to be licensed?
Did
IntelliChoice need to be licensed?
23
A.
Absolutely.
24
Q.
So did you apply on behalf of IntelliChoice or as
25
an individual?
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
A.
You have to apply as both.
24
It's like an alcohol
2
license, I suppose.
3
Plus the individuals have to be vetted.
4
Q.
The--
5
A.
Sorry.
It's not only the establishment.
I just realized we had an FHA and a VA
6
license, so even though -- I want to make sure.
We may
7
have originated loans in other states where we're allowed,
8
where we, through FHA or VA, wouldn't need to be licensed
9
in that state.
So we're still doing that through Arizona.
10
I mean, the operation is all in Arizona, but ultimately,
11
the customer could have been in a -- could have been in
12
Utah.
13
14
15
16
Q.
When you say "Utah," is that specifically
because
A.
A random -- a random --
It has to be in our
region.
17
Q.
What was your region?
18
A.
So we weren't doing a
19
southwest.
20
FHA region that we operated in.
So it would be --
I don't recall.
It's
Southwestern states is the
21
Q.
It's a region defined by the FHA?
22
A.
Yes.
23
24
25
So those are the two other licenses we had,
was FHA and VA.
Q.
You also indicated that you applied for approval
of an advanced fee agreement.
Co ash & Coash, Inc. 602-258-1440
25
Dieter George Gable - November 17, 2010
1
A.
Yes.
2
Q.
Who applied for that?
3
A.
The company has to apply for that.
4
Q.
When did you receive that approval?
5
A.
Shortly after we got approval of the DRE license.
6
Q.
So you think that was in spring of '09?
7
A.
Yes.
8
Q.
And your recollection is that the law changed
9
10
soon after in California?
A.
All the rules started changing early in '09, and
11
whenever that state bill was put the nail in the coffin
12
for anybody, even if they had approved agreements by the
13
state.
14
at that time.
15
Q.
So it was a -- what's called a fluid environment
When were the loan modifications you've
16
described -- you say there were 1,200 or so.
17
begin contracting for the loan modification services with
18
individuals in the state of California?
19
A.
State of California?
When did you
I don't know when exactly.
20
Most of them was -- I would say the vast majority of our
21
business was Arizona, California.
22
maybe summer of '08.
23
that exact --
24
that, the details.
25
right.
It was the fall of '08,
I honestly don't
I don't have
I mean, I was, I guess, ill prepared for
But I can
Those are approximately
Co ash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
30
1
Marcus Sipolt and I individually invested in the firm, and
2
then we are providing services to the company in the area
3
of conversions and ongoing advice.
4
5
6
Q.
Okay.
When you say "conversions," what do you
mean?
A.
So these are when doctors convert whatever method
7
they have right now for electronic medical records, they
8
convert to this platform.
9
and converting their old data, their patient data, patient
10
11
12
It might be training the people
records into a format that's usable in the system.
Q.
Do you have, yourself, a background in
programming of software?
13
A.
Yes.
14
Q.
Just tell me briefly about that.
15
A.
I grew up, so to speak, in the Arthur Andersen
16
what was called the management information consulting
17
division, MICD, and everybody there went through the
18
training course to learn COBOL.
19
RPG, Assembler, Machine Instructions, and Job Control
20
language.
21
other things
22
programming, because that's how everybody got trained at
23
that firm at that time.
I don't know.
So I programmed in COBOL,
You can list a whole bunch of
I've got a very good background in
24
Q.
Have you programmed in Linux?
25
A.
I have not.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
37
1
case in just a moment, but just so that the question is
2
resolved, you yourself -- would you identify yourself as
3
an expert in any other areas?
4
MS. SCOVILLE:
5
THE WITNESS:
6
BY MR.
7
Q.
A.
No.
9
Q.
Okay.
Lottery systems and services.
Any others?
8
Same objection.
10
SCHAEFER:
Which areas of expertise are you applying
in this case?
11
MS. SCOVILLE:
12
THE WITNESS:
Object to the form.
I believe the systems
13
integration, probably the program management as well.
14
for that matter, I suppose the running of a business and
15
realities of running a business.
16
BY MR.
17
Q.
SCHAEFER:
Okay.
Any others?
18
MS. SCOVILLE:
19
THE WITNESS:
20
BY MR.
21
Q.
And
Same objection.
No.
SCHAEFER:
Have you ever been employed by a company that
22
derives a substantial portion of its revenues from
23
direct-to-the-consumer sales of goods?
24
A.
No.
25
Q.
Have you ever served as an officer or a manager
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
38
1
of a company that derives a substantial portion of its
2
revenues from direct-to-the-consumer sales of goods?
3
A.
Yes.
4
Q.
Which company?
5
A.
Fl Race Factory.
6
Q.
What does Fl Race Factory sell?
7
A.
Indoor karting.
8
Q.
Indoor karting?
9
A.
Karting.
10
Q.
C-a-r-t-i-n-g?
11
A.
No.
Ironically, it's k-a-r.
There's a slight
12
difference there.
Probably only appreciated by people in
13
the industry.
14
business is consumers and companies for team-building
15
events, probably the easiest way to understand it.
But they do indoor karting.
Primary
16
Q.
SO what do they sell?
17
A.
Indoor kart racing.
18
Q.
A package?
19
A.
Well, they sell some goods in the sense that
Are they selling a service or a good?
20
there's a pro shop that sells racing gear, and the rest is
21
services, so it's racing and entertainment.
22
kitchen, bar.
23
24
25
Q.
The pro shop is located on-premise of a place
that has indoor karting?
A.
We have a
On-premise and on the web.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
Q.
1
So
But with regard --
39
Sort of to separate
2
the service from the product for the moment, what is the
3
service they're providing?
4
of
5
A.
Entertainment.
6
Q.
They're providing a service
Of entertainment.
And it has a location here in Arizona?
7
8
A.
Yes.
9
Q.
Does it have locations anywhere else?
10
A.
No.
11
Q.
Do you provide the service of developing similar
12
businesses in other locations?
13
A.
We do provide consulting services, yes.
14
Q.
So if someone wants to start indoor karting, they
15
can come to you and say,
"How do I do this?"
16
A.
Yes.
17
Q.
Do you sell franchises?
18
A.
We do not.
19
Q.
And you have a pro shop located at the site in
20
Arizona?
21
A.
Yes.
22
Q.
People can come into the store and buy there?
23
A.
Yes.
24
Q.
What's the average in-store inventory?
25
A.
25,000 probably.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
40
1
Q.
And how many SKUs?
2
A.
You're asking a level of detail I don't know.
3
It's certainly not a grocery store.
4
thousands.
5
Q.
6
It doesn't have
It has maybe -- less.
Are you involved in the operation of the pro
shop?
7
A.
From an advisory capacity, yes.
8
Q.
The pro shop is available at the Internet at what
10
A.
f1racefactory.com.
11
Q.
Were you involved in the development of the -- of
9
12
13
14
15
16
URL?
the website at which you can find
A.
Yes.
involved in,
Q.
I was involved --
I cofounded it, so I was
I would say, every aspect of that business.
What are the online sales of that entity?
What
were they in 2009?
17
A.
I don't know.
18
Q.
Are you aware of whether or not the
19
f1racefactory.com makes sales to consumers in Colorado?
20
A.
I don't know.
21
Q.
Does it have a warehouse?
22
A.
It's in a warehouse, 120,000-square-foot
23
warehouse.
24
Q.
25
Where are orders that are placed over the
Internet fulfilled from?
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
41
1
A.
In the facility.
2
Q.
Do they take goods right out of the pro shop?
3
A.
Or the storage.
4
Q.
How many employees work in the pro shop?
5
A.
Well, everybody can work in the pro shop.
The
6
pro shop is part of the operation, so total employees are
7
50.
8
cross-train people, so --
9
10
I don't think we have it broken down by - -
Q.
We
Who supports the operation of the website?
How
many employees?
11
A.
We have it outsourced.
12
Q.
To whom is it outsourced?
13
A.
I don't know the name of the company right now.
14
Q.
In connection with your work for either
15
TB Consulting or AZ Merchant Partners, LLC, have you ever
16
been engaged as a consultant by a company that derives a
17
substantial portion of its revenues from
18
direct-to-the-consumer sales of goods?
19
A.
Yes.
20
Q.
What were those engagements?
21
A.
First one is Succeed Corporation.
22
Q.
What is that?
23
A.
They provide, for sake of simplicity, a
24
storefront in a box for people who want to have a web
25
presence.
Co ash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
42
1
Q.
Is this a software product that they sell?
2
A.
Yes.
3
Q.
SO if an individual wished to operate a online
4
5
store, they would potentially purchase this software?
A.
They would buy the software, and they could buy
6
ancillary services, which could mean everything, including
7
building out and providing things all the way down to
8
inventory for them, meaning things that they could
9
actually sell.
10
Q.
Do they have product?
11
A.
Through fulfillment houses.
12
13
So they're
drop-shippers.
Q.
SO an individual who is interested in having an
14
online store but doesn't want to have the inventory
15
themselves, they basically contract with a drop-shipper
16
and utilize that inventory as their product mix?
17
A.
Fulfillment.
So they could have that.
They
18
could have their own product; they could have a mix of it.
19
Generally, it would be --
20
would be somebody who has a
21
affinity
22
and they build custom lures, so they would put a
23
storefront out there,
24
could then layer on top of that a whole host of fishing
25
gear things that would be drop-shipped for them through
The typical consumer for that
either group or personal
Maybe they're, for an example, into fishing
sell their custom lures, but they
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
2
3
4
43
national suppliers.
Q.
2009?
A.
How many software packages did Succeed sell in
Do you know?
I don't know.
So my involvement with them was
5
2007 and 2008 primarily.
We helped --
We were engaged as
6
a result of the accountant coming to us.
7
in some financial -- facing some financial challenges,
8
let's say.
9
making sales in the low millions.
The company was
We turned around the company, and they're
So I would say on a
10
number of customer bases, we're probably talking in the
11
less than 10,000-a-year category of storefronts.
12
Q.
Okay.
Any other engagements as a consultant with
13
companies that derive a substantial portion of their
14
revenues from direct-to-consumer sales of goods?
15
A.
Well, I put --
Well, let me ask you, if it's
16
a -- if we have confidentiality agreements with a client,
17
where does that fall here with respect to disclosing a
18
company name?
MS. SCOVILLE:
19
20
It's a well-known -Well, we don't have a
protective order in place yet.
21
Matt, would it be sufficient if he described
22
the type of engagement without giving you the company
23
name?
24
MR. SCHAEFER:
25
THE WITNESS:
Probably.
Okay.
Let's start there.
A company that sells
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
seminars, books, CDs, DVDs, so forth and so on, both
2
domestically and internationally.
3
44
BY MR. SCHAEFER:
4
Q.
What are its annual sales?
5
A.
In the lOs of millions.
6
Q.
Sells these through what channels?
7
A.
Everything from web to affiliates, resellers.
8
Q.
What was the nature of your engagement?
9
A.
We developed their website, and we provide
10
hosting, meaning the technical infrastructure hosting.
11
Q.
For the website?
12
A.
For the website and their entire information
13
technology infrastructure.
14
e-mail and file servers and so forth.
15
16
Q.
So that would be, you know,
Does that mean that you actually have on-site
servers at --
Is it AZ Merchant Partners?
17
A.
This is through TB Consulting.
18
Q.
Inside TB Consulting, the servers that provide
19
20
the hosting?
A.
We keep the servers at 10 Data Centers, which is
21
a -- basically a high-tier data center.
22
those at an office.
23
all the things that come with that.
24
25
Q.
You wouldn't keep
You would have redundant power and
Did you contract out the hosting service to
10 Data Centers?
Co ash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
2
3
4
5
6
7
8
9
A.
47
I believe that's the customer file, as best I
understand it.
Q.
What is the term "householding" as that term is
used in the direct marketing industry?
A.
My understanding of it is to aggregate purchases
within a household by household members.
Q.
What is a "fulfillment center" as that term is
used in the direct marketing industry?
A.
As I understand it, it's the packaging and
10
distribution supplier.
I don't know if I --
The company
11
that takes the product and fulfills the order is the
12
fulfillment center, is how I think --
13
decent definition for you.
Hopefully that's a
14
Q.
Are there retailers that do that for themselves?
15
A.
Fulfillment for themselves?
16
Q.
Have you ever been ordered by any state or state
Yes.
17
agency to discontinue offering any financial service in
18
the state?
19
A.
We got related to the relicensing from our CFL to
20
DRE license, the CFL
21
basically documented the fact we could not use a CFL
22
license anymore with a -- and I hope I got the term
23
right -- desist and refrain order.
24
25
Q.
looking for the right word --
Your recollection is CFL, you said, was the
California --
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Dieter George Gable - November 17,2010
1
A.
48
I believe it's the California Corporation
2
Commission, and what it is,
is a consumer or corporation
3
finance lender, is what CFL stands for.
When they cleared up who should do what and
4
5
under what license, that's when we relicensed ourselves
6
under DRE, and we had a DRE license, and the CFL issued a
7
desist and refrain to all CFL licensees to ensure they all
8
knew that nobody could operate with that anymore.
9
10
11
Your recollection is it was the CFL that did
Q.
that?
Well, the thrust was that you could not use a CFL
A.
12
license anymore.
13
order.
14
order.
15
Q.
16
I don't know who ultimately issued that
question.
Somebody at the state of California issued that
Let me make sure I understand by reframing the
17
Have you ever been ordered by any state
18
agency to desist and refrain from soliciting borrowers
19
and/or performing services for borrowers or lenders in
20
connection with loans secured directly or collaterally by
21
one or more liens on real property?
22
A.
Yes.
MR. SCHAEFER:
23
24
25
And we'll mark as the next
exhibit -(Deposition Exhibit 109 was marked for
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 20 I 0
1
Q.
And finally,
53
it orders you to "Immediately desist
2
and refrain from collecting advance fees,
as that term is
3
define in Section 10026 of the Code, in any form;
4
particularly with respect to loan modification, loan
5
refinance, principal reduction, foreclosure abatement or
6
short sale services, unless and until you demonstrate and
7
provide evidence satisfactory to the Commissioner that you
8
have," and then there are two conditions listed on page 5
9
of the order.
Is that correct?
10
A.
That is correct.
11
Q.
Have you complied with or otherwise attempted to
12
provide evidence to the California Department of Real
13
Estate indicating you have complied with the two
14
conditions on page 5?
15
A.
We shut down the business, so --
16
Q.
So you did not?
17
A.
Did not.
18
Q.
Now, does this order from the Department of Real
19
Estate change your recollection at all regarding the
20
nature of the events in California or your licensure in
21
California?
22
MS. SCOVILLE:
23
THE WITNESS:
24
BY MR.
25
Q.
Object to the form.
Not at all.
SCHAEFER:
So you believe that you obtained a license in
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Dieter George Gable - November 17,2010
54
1
California in the spring of 2009 to act as a mortgage
2
broker, a DRE license?
A.
3
Yes.
Honestly, you would have to --
There's a
4
whole lot of documentation you would have to look at to
5
understand how this doesn't make sense to people who were
6
going through it at the time, which is why, essentially, I
7
think the legislature finally passed that bill and said,
8
"You know what?
9
without license, with or without advance fee agreement."
10
Q.
We're not allowing it in any form with or
If you'll look at the first finding of fact on
11
page 2, it indicates,
12
IMS"
13
licensed by the Department in any capacity."
that's IntelliChoice Mortgage Services -- "been
14
15
16
"At no time herein mentioned has
Does that change your recollection about
your licensure status with the Department of Real Estate?
A.
No.
There are material errors in all of this,
17
including --
18
would have to have a whole bunch of information to go
19
along with this.
20
when they were shutting everything down, so there are
21
material errors throughout this.
22
Q.
Well, like I said, you would have
you
These were churned out by the department
Did you receive a request from the Department of
23
Real Estate to submit information in connection with this
24
investigation?
25
A.
I don't believe so, or I am certain we would have
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1
2
Q.
84
Did you have reason to interact with Ms. Huber in
connection with your work for the Colorado lottery?
3
A.
casually.
4
Q.
How many times have you met her since the summer
5
6
Not in any substantive manner.
of 2008?
A.
It would have been one more all-hands meeting and
7
a number of lottery board meetings.
8
board members, so I don't know what the number would be.
9
But, again, none of those would have been of any
10
She is one of the
substantive interaction.
11
Q.
Why did you attend the lottery board meetings?
12
A.
Because they discussed things of interest and
13
14
15
we're a significant vendor to the lottery.
Q.
Were these public meetings that anyone could
attend, or were you on the agenda?
16
A.
No.
17
Q.
Did you speak at any of these board meetings?
18
A.
I don't believe so.
19
Q.
Do you have an ongoing relationship with the
20
They were public meetings.
Colorado lottery?
21
A.
We do -- TB Consulting does.
22
Q.
What do you do for them?
23
A.
We implemented our proprietary back office system
24
25
and provide ongoing support and services.
Q.
Do you actually operate the back office for the
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85
Colorado lottery?
2
A.
No.
3
Q.
Is that done by the employees of the Department
4
5
of Revenue?
A.
They are lottery employees.
I don't know if they
6
are technically Department of Revenue employees or not.
7
We interact with the lottery.
8
contract being through the Department of Revenue, don't
9
have much interaction there.
We really, other than the
So I don't know what the --
10
if there is a separation of Department of Revenue versus
11
their state employees.
12
13
Q.
The ongoing support services that you provide,
are those in the nature of IT support?
14
A.
primarily.
15
Q.
When you say "back office system," this is the
16
management of the lottery administration, not of the
17
lottery itself or
18
A.
So this is the lottery core functions except for
19
the online terminals and systems that are at the retailer
20
and the network that goes with it.
21
Powerball, Mega Millions, Lotto, and all those games,
22
those are administered by Scientific Games using their
23
system.
24
inventory control, distribution, marketing, the retailer
25
licensing, security, billing, accounting.
So with respect to
We handle all the scratch ticket, accounting,
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Q.
86
How is that contract with the Colorado lottery
2
structured in terms of compensation for TB -- is it
3
TB Consulting?
4
A.
Yes.
It's a time and materials, with a
5
6
not-to-exceed,
I believe.
7
Q.
Is the not-to-exceed set on an annual basis?
8
A.
On a contract basis.
9
Q.
What's the term of the contract?
10
A.
It is up October of 2011.
11
Q.
When did it go into effect?
12
A.
Would have been October 2008.
13
Q.
So this is a three-year?
14
A.
Three-year contract.
15
Q.
What's the not-to-exceed for the three-year
16
contract?
17
A.
I don't have that number handy.
18
neighborhood of probably $4 million.
19
hardware,
20
It's in the
professional fees.
21
22
23
Q.
third-party, and so forth,
That includes
TB Consulting
Are you familiar with any other officials of the
Colorado Department of Revenue?
Actually, before I ask that, who is the
24
point person with Colorado lottery that you interact with,
25
if there is one?
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1
A.
Currently?
2
Q.
Yes.
3
A.
J.E. Lewellen, L-e-w-e-I-I-e-n, I believe.
4
Q.
And was there a person in that role prior to
5
Ms. or Mr. Lewellen --
6
A.
Mr. Lewellen.
7
Q.
Was there a person prior to Mr. Lewellen?
8
A.
Jack Boehm, B-o-e-h-m.
9
Q.
Who is the top official of the Colorado lottery,
10
if you know?
11
A.
The current executive director of the lottery is
12
Abel Tapia.
13
Q.
Is that an appointed position?
14
A.
Yes, it is.
15
Q.
Who does the appointment?
Do you know?
16
Ms. Huber who makes the appointment, or is it the
17
governor?
18
A.
Is it
I do believe it's the executive director of the
19
Department of Revenue, so ROxy Huber would be making that
20
appointment.
21
Q.
In this conference call in which individuals from
22
the Colorado Department of Revenue participated, did they
23
provide you any information in connection with the
24
preparation of your report?
25
A.
They reviewed the materials that were on the
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Dieter George Gable - November 17,2010
96
1
A.
Yes.
2
Q.
-- or meaning
3
A.
Both.
4
Q.
Did you also review the statute?
5
A.
I did not review the statute.
6
Q.
Did you do anything else to prepare?
7
A.
No.
8
Q.
How long in total did you spend preparing for
9
10
this deposition?
Two hours.
A.
11
MR. SCHAEFER:
12
(An off-the-record discussion ensued.)
13
14
Off the record for a moment.
BY MR. SCHAEFER:
Q.
With regard to Exhibit 116, your report,
if you
15
will turn to page 2, the Statement of Opinions,
16
opinion A
17
minimum threshold of $100,000 in gross annual Colorado
18
sales, the relatively small number of retailers are
19
subject to the Requirements."
it's cap A - - you state,
"Based on the
Did I read that correctly?
20
A.
Yes.
21
Q.
The report elaborates, to a certain extent, on
22
these opinions.
With regard to opinion A, there's
23
additional material on pages 5 and 6.
Is that correct?
24
A.
That's correct.
25
Q.
Right at the bottom of the page on page 5, last
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1
few words, you indicate that "the number of affected
2
retailers should be in the low thousands."
3
correct?
Is that
do.
4
A.
I
5
Q.
What do you mean by the "low thousands"?
6
A.
If I draw a -- or extrapolate from the numbers
7
that are provided on sales data and see that we're going
8
from somewhere north of a billion, excluding outlying data
9
points like Amazon, but retailers with north of a billion
10
dollars of sales down to 10 million in sales
so down to
11
1 percent of that -- and that encapsulates 500,
that would
12
suggest to get down to 6 million is not going to be an
13
overly significant number of retailers.
14
stats that track every possible retailer, but I would
15
extrapolate out that it would be reasonable to say that
16
the number we're talking about is, as I stated, low
17
thousands and not a significant number of the entire
18
retailer base that exists in the United States or
19
elsewhere.
20
Q.
21
22
So
But how many do you mean when you use the
word "low thousands"?
A.
So there are no
What number?
I don't have a number for you.
I think you can
23
statistically extrapolate and the argument would then be
24
whether or not that's statistically valid, because there's
25
really no data.
But I think it's a minority of
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Dieter George Gable - November 17, 2010
1
2
98
retailers -- a small minority of retailers.
Q.
Can you provide a range?
When you say "low
3
thousands," what's the range of numbers you're talking
4
about?
5
A.
I would hesitate to give a range, but I would say
6
we can be reasonably certain that it's closer to 10,000
7
than any other much larger number.
8
9
Q.
The affected retailers that we are talking about
and that you're mentioning here are all those having
10
annual gross sales in Colorado in excess of a hundred
11
thousand dollars.
Is that right?
12
A.
That's correct.
13
Q.
And I think you, on page 5, in paragraph 1 of
14
opinion A, indicate that a hundred thousand in gross sales
15
in Colorado translates into approximately $6 million in
16
total nationwide sales?
17
A.
If we assume that there is a proximate
18
relationship between population and sales, it came out to
19
be just north of $6 million in sales.
20
21
Q.
That's the assumption you've made for purposes of
this report?
22
A.
Yes.
23
Q.
So when you refer to "affected retailers," you
24
are referring to retailers having sales in excess of
25
$6 million that do not collect Colorado sales tax.
Coash & Coash, Inc. 602-258-1440
Is
Dieter George Gable - November 17, 2010
1
99
that right?
2
A.
Not necessarily.
3
Q.
Okay.
4
A.
I think I'm referring to retailers that have more
5
than a hundred thousand in gross sales.
6
comes into play merely to point to the fact that the
7
number of retailers should be low.
Q.
8
The 6 million
Fair enough.
In estimating the number of affected
9
10
retailers, you're using the $6 million benchmark.
11
talking a moment ago in your answer extrapolating downward
12
from annual -- from annual sales figures that were
13
nationwide.
14
A.
Yes.
15
Q.
SO for purposes of approximating, you're using
16
that $6 million annual sales on a nationwide basis
17
benchmark?
18
A.
You're
19
I think that's the best benchmark I could come up
with to approximate how big of an issue this would be.
Q.
20
So we know that we have the 500 potentially
21
affected retailers in the Internet, top 500 that you
22
identified, and of course some of them report Colorado
23
tax.
So it's not going to be all 500.
24
A.
I think that's
25
Is that a fair
Nothing would suggest
otherwise.
Coash & Coash, Inc. 602-258-1440
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1
2
Q.
100
So the challenge is to identify those between
6 million and 10 million, in essence?
3
A.
Essentially.
4
Q.
On page 6, you indicate there are certainly
5
hundreds of thousands, at least, of total retailers,
6
because as you cite, there are even just two Internet
7
sales software -- strike that --
8
software vendors that you're aware of have more than
9
160,000 customers between them.
Two e-commerce platform
10
A.
Yes.
11
Q.
So we know there are at least hundreds of
12
13
thousands of retailers.
A.
I agree.
If I can add one more facet to this, is
14
if we look at the customer base for Succeed, which was an
15
e-commerce platform, the relative number of merchants that
16
opened a web front or storefront or start selling their
17
wares to whoever they sell them to, the number that reach
18
a meaningful level of -- I would argue even six-figure
19
sales in aggregated total, forget about what locale -- is
20
a very small percentage.
21
to believe we're talking a very small number here.
So, again, everything leads me
22
Q.
Relative to the total number?
23
A.
Relative to the total.
24
Q.
Are you aware that there are some estimates that
25
place the number of e-commerce sellers total from zero on
Co ash & Coash, Inc. 602-258-1440
101
Dieter George Gable - November 17,2010
1
2
up, that's something like 5 million?
A.
I think when you add in the hobby e-commerce
3
seller, who might be selling purely through eBay and
4
doesn't even have their own storefront, I would suspect
5
that's probably a good number as any.
6
7
Q.
Okay.
So you think 5 million is a reasonable
estimation?
8
A.
Sure.
9
Q.
And as you say, even if it were only -- I can do
10
the math -- even if there were only .2 of 1 percent of all
11
of those retailers above 6 million in sales, that would be
12
10,000 retailers?
13
A.
Am I allowed to use my calculator?
14
Q.
Absolutely.
15
A.
You say .2 of 1 percent?
16
Q.
Yes, of the 5 mil.
17
A.
.2 of 1 percent.
18
Q.
That's right.
19
If it were half of a percent of all online
20
retailers above 6 million, then we would be at 25,000
21
potentially affected retailers?
22
23
24
MS. SCOVILLE:
sure --
Object to form.
Could you say that again?
MR. SCHAEFER:
Sure.
25
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I'm not
Dieter George Gable - November 17,2010
1
102
BY MR. SCHAEFER:
Q.
2
Based on the same estimate of 5 million total
3
e-commerce sellers, if a half a percent of those total
4
e-commerce sellers had annual sales in excess of
5
6 million,
6
affected retailers.
A.
7
it would approximately mean 25,000 potentially
From a pure mathematical standpoint, I can do the
8
math and get to 25,000.
From a legitimate likelihood of
9
that being the real number,
I think that's without any
10
foundation I can find, at least in the statistics I looked
11
at.
12
13
14
15
16
Q.
So you think something more like 10,000 is more
reasonable?
A.
I would have no reason to believe it would be
over 10,000.
Q.
Now, that estimate is just e-commerce vendors
17
that I mentioned.
18
Colorado law applies to other types of remote sellers?
19
20
21
22
A.
Is it your understanding that the
The catalog and everything I think would be, yes.
Anybody selling into the state of Colorado, yes.
Q.
So that would be potentially other types of
remote sellers affected by the law, potentially?
23
A.
Absolutely.
24
Q.
That would include not only catalog vendors but,
25
for example, direct-to-consumer television vendors.
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
Yes?
1
2
103
A.
Yes.
MS. SCOVILLE:
3
4
any notes, you sure can.
5
I think if you need to make
BY MR. SCHAEFER:
6
Q.
Turning to opinion B -- we may as well work with
7
the statement of it as contained in the body of your
8
report.
9
are restatements of the list at the front, are they not?
The bold headings within the body of the report
10
A.
They are intended to be identical, yes, sir.
11
Q.
Okay.
So statement B -- or opinion B, as set
12
forth on page 6, states,
"Requirements provide sufficient
13
leeway for variances in approaches for compliance to allow
14
affected retailers to comply with reasonable efforts."
15
Did I read that correctly?
16
A.
Yes.
17
Q.
The first heading underneath opinion B concerns
18
the transactional notice.
19
Transactional Notice states,
20
generalized tax statement in the event the retailer is
21
subject to a number of taxing authorities or
22
jurisdictions. "
23
24
25
And your first subsection under
"The Requirements allow for a
Did I state that correctly?
A.
I believe so.
MR. SCHAEFER:
Let's mark this document as
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115
1
A.
Yes.
2
Q.
So we may be talking about those as we go along,
3
some of the individual aspects of each of them.
4
wanted us to have a framework for the discussion
5
Yes.
A.
6
I just
Q.
moving forward.
So under B3, the annual disclosure to the
7
8
DOR, after referencing the Colorado Department of Revenue
9
instructions in sUbpart A, you say in subpart B,
"The
10
format is a simple, well described, file that can be
11
produced with information readily available within any
12
viable eCommerce platform, using widely used Microsoft
13
product Excel or an equivalent application available for
14
free," then a citation to a couple of the documents you
15
reviewed.
What do you mean by "viable eCommerce
16
17
platform" ?
18
A.
Well, I would say viable in the sense -- and I
19
use "viable" throughout here to encompass applications
20
that have a meaningful life left in them.
21
there -- you could theoretically produce somebody who is
22
still running on a mainframe from the '60s and doing punch
23
cards.
24
available.
25
e-commerce platform, that should be readily available.
I
I
suppose that
would say that they may not have that readily
But for somebody who's got a reasonable
Coash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17, 2010
1
2
Q.
Okay.
116
So you mean viable in the current market
environment?
3
A.
Yeah.
4
Q.
Okay.
5
6
You indicate that they could use Microsoft
Excel or an equivalent application to produce the report.
A.
To produce the extract.
The report's really a
7
file for the department, and you can produce that extract
8
of information using either Excel or what's available
9
through Google tools for free,
10
11
12
if somebody doesn't have
that.
Q.
What is the format that has to go to the
department?
If it's not a .xls Excel file, what is it?
l3
A.
.csv or a comma-delimited file.
14
Q.
And is that something that you can create using
15
Excel?
16
A.
17
18
You can save your file, simple as save as, and go
from Excel to a comma-delimited file with no intervention.
Q.
Are you aware of the fact that Excel has certain
19
limitations regarding the amount of data that can be
20
contained in one Excel file?
21
A.
Absolutely.
22
Q.
It's a fairly large amount of data, but there is
23
a limitation, is there not?
24
A.
It's a very significant amount of data.
25
Q.
To your understanding, is it something like
Co ash & Coash, Inc. 602-258-1440
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1
2
117
70,000 lines?
A.
I would not venture an exact guess, but I
3
actually would believe it's higher than that.
4
orders of magnitude, that's fine.
5
6
Q.
But for
Larger retailers may well have tens of thousands
or even hundreds of Colorado customers.
Is that true?
7
A.
I'm certain that's a possibility.
8
Q.
Okay.
9
10
11
If they were to reach the capacity of
Excel to contain data from their house file or customer
file,
A.
they would have to do something else, wouldn't they?
I would say that the report really doesn't
12
address the requirements for somebody who has got a
13
customer base of that order of magnitude, because their
14
capabilities would probably lead me to believe that Excel
15
would not be in their normal operating procedures, that
16
they have much more sophisticated tools and would extract
17
this into a comma-delimited file using their existing
18
systems with the proverbial flip of a switch.
19
Q.
There would be some cost, but it wouldn't be
20
associated with converting to an Excel file.
21
would do something else that was within their systems?
22
23
24
25
A.
It would be
And they
I would expect a nonmeaningful
number in the scheme of somebody of that size retailer.
Q.
Okay.
I want to jump ahead in your opinions to
opinion H, if you would, which is on page 11.
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Dieter George Gable - November 17,2010
118
1
is the one that sets forth some actual cost estimates.
2
on page 11, opinion H, you state as follows:
3
Requirements" -- that's a capital R.
4
term of having a definition within the scope of this
5
report.
6
capital R, you mean all of the requirements in the
7
So
statute, yes?
"The
It's meant to be a
As you use the term "the Requirements," with a
8
A.
The three meaningful parts, yes.
9
Q.
The transactional notice, the annual notice to
10
consumers, and the annual report to the DOR taken
11
together?
12
A.
Yes.
13
Q.
SO beginning again, you state,
"The Requirements
14
will require additional effort by affected retailers
15
resulting in onetime, non-recurring first year, costs that
16
range from $2,571 to $6,000 (0.043 percent - 0.100 percent
17
as a percent of sales) plus annual recurring costs
18
estimated at $589 to $1,000 (0.010 percent to
19
0.017 percent as a percentage of gross annual sales)
20
"
Now, those ranges of cost that you provide
21
there, you have given more detail for the manner in which
22
you calculated those in Exhibit A -- Exhibit A.1, yes?
23
A.
I -- I gave more detail behind the calculations
24
but also provided the italicized parenthetical comment
25
after that to notate what retailers we're talking about.
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1
determined the percentage of annual sales that that
2
represented for your small seller, or did you do it the
3
other way around?
4
dollar figures identified in opinion H?
5
A.
How did you -- how did you get to your
Yeah, I'm not sure built up to the number.
I
6
essentially took the levels of effort and the people
7
involved in that level of effort and quantified that.
8
Then I came to quantifying what is the cost of those
9
resources, tabulated that, and then afterwards attempted
10
to normalize this to give some relative meaning to the
11
numbers by putting it as a percentage of sales.
12
Q.
I think that was clear, but what
So it wasn't
13
you didn't do is say,
"I think it's going to cost
14
X percent of sales," apply that to some number like
15
6 million,
16
A.
No.
17
Q.
-- range.
18
A.
No.
19
Q.
And as you indicate in opinion H, the
then come up with a --
20
parenthetical on page 11, it states,
21
estimated for the compliance efforts of the smallest of
22
the affected retailers."
23
"the smallest of the affected retailers," what are you
24
referring to?
25
A.
"Note:
I'll stop there.
the costs are
When you say
I'm referring to the people who are marginally
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1
meeting the minimum requirement, so they've exceeded the
2
threshold, but they have not gotten to the level of a top
3
500 retailer.
4
Q.
Okay.
5
A.
Because I think those would skew the numbers, and
6
honestly, their costs are very different because theirs
7
are, in the great scheme of things, probably difficult to
8
segregate from just doing business and just maintaining
9
their normal, day-to-day operations.
10
Q.
Okay.
The --
When you say the smallest, you
11
mean below the Internet 500.
Is that the 6 to $10 million
12
range?
13
A.
Somewhere in that range, yes.
14
Q.
You go on to say,
"The costs for compliance by
15
larger affected retailers is ignored as the impact, when
16
normalized on a percentage of sales basis, is expected to
17
be lower or even inconsequential."
18
A.
Yes.
19
Q.
Okay.
Did I read that right?
Now, I just want to clarify, you're not
20
saying, are you, that there are -- retailers larger than
21
the smallest retailers will incur no costs of compliance,
22
are you?
23
A.
I think I stated that for the larger affected
24
retailers, when you normalize the cost, rather than take
25
the absolute cost of them doing anything, that it becomes
Coash & Coash, Inc. 602-258-1440
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1
inconsequential.
2
a top-10 retailer may spend tens of millions a year in
3
server and hosting and management of their infrastructure,
4
but that number is meaningless when it gets to the smaller
5
retailer.
So I'm trying to do it for the smaller
6
retailer.
The larger retailers have large cost bases, and
7
whatever requirements are within this are a drop in the
8
proverbial bucket.
9
Q.
And I put that in the context of and
Two things I want to clarify from your answer.
10
The first is
11
just make sure, because it's slightly different from what
12
the report says.
13
I think we already confirmed, but let me
When you say "the smallest retailers,"
14
you're using the $6 million benchmark for purposes of your
15
discussion in your report.
Is that fair to say?
16
A.
Somebody who is in that ballpark --
17
Q.
Okay.
18
A.
-- plus or minus.
19
Q.
You're not saying, though, that a retailer with
20
$7 million in annual revenues doesn't have costs?
21
have costs?
22
A.
They may be identical in cost.
23
Q.
Similar to the 6 million?
24
A.
Similar to, exactly.
25
Q.
I think we already discussed this.
They
Coash & Coash, Inc. 602-258-1440
But same for
Dieter George Gable - November 17, 2010
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1
8 million, you're not saying they have no costs.
2
approximate costs as the -- in absolute terms if you like,
3
as the $6 million seller?
4
A.
5
identical.
6
Q.
Same
I think in absolute terms, they may be similar or
The same was true up to about the 10 million
7
level, from what I understood from our prior
8
conversations.
9
costs, you agree?
10
A.
Sellers with 9 million in sales have some
I don't know where the delineation is.
You'll,
11
I'm sure, be able to find retailers at the $6 million
12
level that are ahead of the game and can do this for a lot
13
less.
14
spend about the same who are $20-million-a-year retailers.
15
My report intended to reflect what is the impact on the
16
people who, on a percentage of sales basis, would probably
17
be mos t impacted.
18
19
Q.
And there are retailers who will proportionately
Okay.
Your thinking in that regard is the folks
outside the Internet 500, the Internet retailer?
20
A.
Absolutely.
21
Q.
Now, the other thing I want to clarify from that
22
is your use of the term "normalization."
23
that you're using that term based upon what you've done in
24
your report to mean as a percentage of net sales.
25
Essentially, you're normalizing costs to view them through
It appears to me
Coash & Coash, Inc. 602-258-1440
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1
the lens of -- as a percentage of net sales?
2
3
4
5
6
7
8
9
124
MS. SCOVILLE:
Object to the form.
BY MR. SCHAEFER:
Q.
Is that a fair statement of your use of the term
"normalization"?
A.
And if it's not, please clarify.
I think I attempted to use percentage of sales as
a way to show relative impact.
Q.
Okay.
And is that the same process as
normalizing the costs, in your term?
10
A.
In the way I used it, yes.
11
Q.
Okay.
Now, it is true,
is it not, that even
12
retailers with over a billion dollars in sales will have
13
some costs, but on this percentage of sales basis, they
14
may be tiny, almost inconsequential in your
15
16
17
A.
Yes.
Either inconsequential or potentially
immeasurable.
Q.
Now, there are some costs, are there not, of the
18
Colorado law that will increase with the size of the
19
retailer.
20
A.
Is that a fair statement?
If nothing else, if you have a lot of notices and
21
you have a billion-dollar retailer, they have more postage
22
than another retailer, yes.
23
Q.
Okay.
24
A.
It probably reflects their overall cost of
25
business is much higher on everything they do.
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1
Q.
125
Just to make clear we're talking about the same
2
thing, the annual notices to the consumers is what you're
3
referring to with regard to -- if they have more notices
4
they have to send to consumers on an annual basis because
5
they are a larger retailer?
6
A.
Absolutely.
And they have a larger warehouse and
7
more light bills, and they have a larger warehouse and
8
more personnel.
9
be more expensive in order to generate whatever larger
10
11
Everything for them is probably going to
sales number they have.
Q.
Okay.
But they'll actually have to send out in
12
the mail more notices.
13
example, at least will cost them somewhat more, although,
14
again, it may be small to that retailer in terms of a
15
relative cost?
16
A.
You're saying the postage, for
I think I state in other places in the report
17
that Colorado provides flexibility where they can offset,
18
diminish, or eliminate the incremental cost.
19
Q.
Right.
They may have to send more annual notices if
20
21
We'll talk about that in a minute.
they're larger?
22
A.
I would agree.
23
Q.
Okay.
HI is the transactional notice.
In
24
part b, you give a range for compliance with the
25
transactional notice, which reads as follows:
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"The cost
Dieter George Gable - November 17, 2010
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1
for compliance with the Transactional Notice Requirement,
2
if any, would range from $263
3
modifying existing Transactional Notice to comply with
4
Requirements) to $1,038 (high end for retailer having to
5
create a new Transactional Notice to comply with
6
Requirements)"
Did I
7
(low end for retailer
read that right?
8
A.
Yes.
9
Q.
Now, if you accept my representation from earlier
10
this afternoon that Colorado is the first state to
11
implement a transactional notice requirement, would you
12
agree that all retailers are -- fall into the category you
13
identify as being toward the higher end, that is,
14
retailers having to create a new transactional notice?
15
A.
I do not.
16
Q.
Okay.
17
A.
I believe retailers who are in many jurisdictions
And why not?
18
and may have mUltiple physical locations and be subject to
19
tax in multiple locations already have some form of a
20
transactional notice related to tax with respect to
21
example, we operate in Texas, Vermont, and Oklahoma, and
22
you'll be charged taxes there but not elsewhere.
23
though they don't have a transaction notice in the sense
24
of what we're talking about here, they have a
25
transactional notice related to taxes to cover their
Coash & Coash, Inc. 602-258-1440
For
So even
Dieter George Gable - November 17, 2010
1
2
127
collecting states requirements.
Q.
Understood.
But by the premise of this law,
3
we're talking about folks
4
not have an obligation to collect in Colorado.
5
notices that exist would make no reference to Colorado,
6
would they?
7
A.
that is, retailers
who do
So their
They would make no notice or make no reference to
8
Colorado, but they would be able to modify an existing
9
notice.
And from a level of effort standpoint, it's a
10
matter of "Do I have something that we can modify, or do I
11
need to find a new place for it?
12
room for it.
13
level of effort.
14
doesn't imply that there is a modification of a generic
15
transactional notice, because that wouldn't require it.
16
That's covered in item C, which says, theoretically, if
17
they had a generic notice, there would be no cost.
18
Q.
Because I have to find
Now, do I need to move things around?"
Right.
So that's the modification part.
That
It
So just to clarify with regard to item C,
19
you're saying,
theoretically, if they had such a thing --
20
if Colorado is the first -- then no one would?
21
A.
At onset.
22
Q.
Right.
23
A.
But the reality is going down five years from now
24
when somebody starts a retailer and grows up and it
25
becomes a retailer subject to this, at that point they may
Coash & Coash, Inc. 602-258-1440
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128
have one and may actually not have an incremental cost.
2
Q.
Right.
3
A.
So these are retailers also in the future.
So
I
4
understand that currently there may be none, but certainly
5
in the future, as retailers bubble up and get to that
6
mark, they may very well not have any incremental cost.
7
Q.
You're talking about first-year requirements here
8
now being first year of the bill as well as first year
9
of
10
A.
Yes.
So I think -- I don't believe it's a fair
11
representation to say that everybody's going to be having
12
to create one.
13
are going to modify an existing multistate transactional
14
notice, and there will be people who will have to create
15
one from scratch.
16
Q.
I think there are going to be people who
SO in that regard, you're using the term
17
"transactional notice" here broadly, any kind of notice
18
with regard to the transaction -- any kind of notice that
19
concerns taxes on the transaction?
20
A.
As one example.
It's a transactional notice,
21
anything related to some sort of notification to the
22
customer about that.
23
about shipping charges or taxes, something in the general
24
area of your checkout that you can modify to -- and
25
leverage to meet the requirement.
It could be that they give notices
Coash & Coash, Inc. 602-258-1440
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1
specific forms that I don't recall in the Colorado
2
regulation.
3
it's all new or so substantially new.
4
Q.
So I'm not entirely certain I could say that
On page 12, we have the customer service
5
inquiries item there at the top of the page,
item
6
number 2.
7
amend or add to their Customer Service call or web-chat
8
scripts to address inquiries from customers related to the
9
compliance with the Requirements."
And you indicate that "Retailers may have to
10
subparagraph,
11
will range from $735 to $1,470."
In the next
"The estimated cost of this one time change
Did I read those right?
12
A.
Yes.
13
Q.
Does the range 735 to 1470 depend on whether they
14
are amending or adding in the words that you used in the
15
first part?
16
A.
I would say if they have substantially everything
17
in place, it may be lower than this cost.
18
the range of having to develop something to address this
19
specific requirement.
20
21
Q.
Right.
This is more in
This is your report, though, right?
report says it will be between 735 and 1470.
Your
Yes?
22
A.
Exactly.
23
Q.
What I would like to know, for the present
24
purpose, is, is the range from 735 to 1470 dictated by
25
what you describe in the immediately preceding paragraph
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1
as being a question of whether or not they have to amend
2
or add?
3
4
5
6
A.
To the extent that the report says may have to
amend or add.
Q.
So it does depend on whether they're amending or
adding?
7
A.
If at all.
8
Q.
Okay.
9
Is it fair to say that
I'm
interpreting this right to say that if they're amending,
10
their costs are lower; if they're adding, their costs are
11
higher?
12
A.
Yes.
13
Q.
Now, in item 3, the annual notice to consumers,
14
you make a point to indicate again that you're estimating
15
these costs for a retailer on the smaller side, 6 million
16
in magnitude, certainly outside the Internet top 500.
17
that fair?
18
A.
Yes.
19
Q.
You talked a moment ago about the fact that
20
larger retailers will incur costs to send the annual
21
Is
notice, will they not?
22
A.
Yes.
23
Q.
Okay.
24
A.
Subject to them having to send annual notices.
25
So -I
mean, it's conceivable that somebody could have 20 million
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132
1
in sales and not send a single notice if they happen to
2
sell a lot of lower-end ticket items and not reach that
3
threshold.
4
Q.
Right.
They have to have at least one customer
5
who purchases $500 from them in the state of Colorado for
6
that requirement to apply?
7
8
9
A.
And they may only have 10, so to speak.
I know
we're talking about extremes, but -Q.
Right.
And,
10
in fact, you indicate there the annual
11
notice preparation and distribution requires an effort
12
with variability only in the size of the retailer and the
13
number of notices required to be sent.
Is that correct?
14
A.
Yes.
15
Q.
They send more notices, they'll have somewhat
16
more cost associated with the actual mailing and materials
17
costs for the notice, at any rate?
18
A.
Yes.
To the extent that, obviously, the larger
19
retailers will
I am guessing at least be afforded the
20
opportunity or take the opportunity to mitigate their
21
costs?
22
Q.
Right.
23
And we'll talk about that.
In subpart B, with regard to the first year,
24
you indicate,
"For these retailers, the total initial one
25
time or first-year cost would be between $1,601 and $3,023
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1
or .027 percent and 0.050 percent as a percentage of gross
2
annual sales."
Now,
3
that first-year cost includes costs
4
related to understanding the requirement,
5
system to produce it, settling upon the actual language to
6
use, and the mailing costs for that first year.
7
fair characterization?
8
9
A.
developing a
Is that a
I would say that's a reasonable characterization,
but I don't believe you mentioned the mechanics of it and
10
a mail merge or some sort of a process by which to bring
11
all that together in an efficient manner.
12
13
Q.
That would be one other component that's included
in that first year also.
14
A.
Yes.
15
Q.
And the range there is based upon how many
16
notices being sent in terms of the actual number of
17
notices?
18
A.
Your range of costs.
I believe the spreadsheet says it was 200
19
notices, which was somebody reaching. the $100,000
20
threshold and sending out exactly 200 notices to add up to
21
the hundred thousand dollars worth of sales.
22
Q.
So on Exhibit A.l, your cost calculations, the
23
last set of rows under the word "Consumables, " there's an
24
indication that there are 200 annual notices.
25
A.
Is that
Simply by dividing the hundred thousand by 500
Co ash & Coash, Inc. 602-258-1440
Dieter George Gable - November 17,2010
1
and saying that it happened to be that they had 500 or
2
$501 purchases times 200 customers, and that would be a
3
maximum number of notices that they would have to be
4
134
sending out.
5
6
Q.
But your range of costs is based on that
assumption?
7
A.
On the maximum worst-case scenario.
8
Q.
To make sure we get the number, it's based on the
9
assumption of 200 notices?
10
A.
Yes.
11
Q.
Now, in item -- sub item i under b, you indicate,
12
"Retailers who already have a generic notice to consumers
13
meeting the Annual Notice requirement would not incur a
14
'1st Year' expense but would immediately fall into the
15
'On-going' cost estimate reflected in G.3.c."
16
If you take my representation that Colorado
17
is the very first state to impose such a requirement, do
18
you agree with me that there wouldn't be,
19
year, retailers who already have a generic notice to
20
consumers that meet the annual notice requirement?
21
A.
It would be highly unlikely.
in the first
I think this would
22
be more looking at future retailers that are becoming
23
subject to.
24
Q.
25
indicate,
But agreed.
Now, with regard to 3c, the ongoing cost, you
"For these retailers, the on-going yearly cost
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1
would be between $354 and $530 or 0.006 percent and
2
135
0.009 percent as a percentage of gross annual sales."
Did I read that right?
3
4
A.
Yes.
5
Q.
And your annual sales percentages there, again,
6
are based on a company with 6 million in annual sales?
7
A.
Yes.
8
Q.
Am I right that the ongoing yearly costs of the
9
10
annual notice are lower because you don't have some of the
first-year development costs in those later years?
11
A.
Absolutely.
12
Q.
SO what are the
You have materials costs,
13
correct, in every year?
14
nonmaterials costs associated with the annual notice?
15
A.
What are the remaining
The fulfillment component of that, so the
16
extraction of data, the mail merge, the stuffing of
17
envelopes.
18
Q.
19
20
21
The human cost of stuffing envelopes.
Okay.
Okay.
A.
And I do believe --
Let me just check something
real quick here.
22
I do have in here at least some management
23
time to glance at it and see whether or not there's
24
anything materially different.
25
Q.
Right.
So Exhibit A.1 for that annual notice
Coash & Coash, Inc. 602-258-1440
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136
1
ongoing, it looks like you have between half an hour and
2
an hour of management time?
3
4
5
6
A.
Yes.
At least take a look at it and see if
there's anything glaring.
Q.
A higher portion of the ongoing cost is in the
production.
Almost all of it is in the production?
7
A.
Yes.
8
Q.
That little exception of management.
9
A.
I believe the highest cost is in the -- continues
10
to be labor, because we're talking a reasonably small
11
number of notices and, quite honestly, a very high
12
estimate of what it would take to stuff 200 notices.
l3
14
Q.
And just to
Again, this is based on how many
notices being sent?
15
A.
200 notices.
16
Q.
I f we look at Exhibit A.l for a moment,
the
17
spreadsheet,
18
bottom part of the table, going to the next to last column
19
for annual notice ongoing, it appears to me
20
I'm wrong -- that you have total cost of consumables.
21
would add together the paper costs of $2,
22
cost of $4, the envelope cost of $68, the mailing label
23
cost of $17, and the stamp or postage cost of $88 to get
24
the cost of consumables for the 200 notices?
25
A.
just the consumables set of rows there at the
tell me if
You
the printing
Understand there is some -- for readability,
Coash & Coash, Inc. 602-258-1440
I
Dieter George Gable - November 17, 20 I0
1
2
didn't include any cents, but for the -Q.
137
Yes.
Fair enough.
And if I add those up -- you're welcome to
3
4
use your calculator if you'd like -- I think it's $179 of
5
cost associated with the 200 annual notices.
6
A.
I think that's right.
7
Q.
And if you were to divide that by the 200 annual
8
notices
tell me if I'm wrong
9
but I think it is 89
and a half cents per notice.
That is correct.
10
A.
Yes.
11
Q.
So the cost of per notice based on just
12
consumables and meaning materials and postage is about 89
13
and a half cents per notice?
14
A.
For somebody sending out 200 annual notices.
15
Q.
Okay.
Now, companies that have to send more than
16
200 notices will have higher absolute costs in terms of
17
consumables, won't they?
18
A.
Higher absolute costs?
19
Q.
Yes.
20
A.
And potentially lower per-notice cost.
21
Q.
Again, I think Amazon is sort of the elephant in
But yes.
22
the room in all of this discussion.
If we assume the
23
population of Colorado is about 5 million -- do you
24
understand that to be the case?
25
around 5 million people?
Population of Colorado,
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138
1
A.
Around 5 million, yes.
2
Q.
Would you agree with me that Amazon, the number
3
one Internet seller on the Internet top 500, may have a
4
million Colorado customers?
5
A.
I would have no basis to say yes or no to that.
6
Q.
Let's assume that they did --
7
A.
Okay.
8
Q.
-- for purposes of the question.
9
The law --
Colorado law at issue in this case also requires that a
10
notice be provided to non-Colorado residents who ship
11
goods into Colorado as well, as long as they are over the
12
500 threshold.
Is that correct?
13
A.
Yes.
14
Q.
SO if even only 1 percent of those million
15
customers purchased over $500 in a year, would you agree
16
with me that translates into about 10,000 customers who
17
are supposed to receive a notice?
18
A.
If I --
If is a big if on the 1 percent.
19
don't know.
20
I
out to be 10,000, I agree.
21
22
23
Q.
But if it's 1 percent, the math would work
And on a per-notice basis, it's going to be
something like 89 and a half cents per notice?
A.
I -- I think I
That would be ignoring the
24
other finding in the report, that a retailer of that size
25
would figure out a way to send out that transactional
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1
2
139
notice probably at little to no cost.
Q.
Well, why don't you explain that to me?
3
I think that is highly questionable.
4
Because
So give me your
explanation of that.
5
A.
Do we have the rules handy by any chance?
6
Q.
I don't.
7
A.
So let me just point to something real quick.
8
9
One second.
Okay.
If I look at the opinion J on page 14
10
and I state the opinion that "The incremental cost of
11
mailing Annual Notices can be mitigated by including other
12
information and materials for the consumer," essentially,
13
the requirement is for an annual notice to be sent -- for
14
it to be properly notated on the outside of the envelope
15
and sent first class.
16
providing inserts, some limited amount of advertisement
17
within the scope, because the limitation, as I recall, is
18
that it just not be part of a regular shipment.
19
can't be part of a shipment of goods.
20
Nothing precludes the retailer from
So it
And so I believe that in these cases, it
21
could either be mitigated by marketing costs or
22
third-party material that could be inserted, similar to a
23
utility statement, where you'll get a flyer advertising
24
some other things that, essentially, take the utility
25
company's cost of mailing that down significantly on a
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140
per-piece basis.
2
And I would expect that Amazon, at that
3
size, if we're talking about the extreme ends of the
4
spectrum, would have a reasonable size incentive, if they
5
had a large order of magnitude of notices, to invest money
6
into figuring out a way to mitigate that cost.
7
Q.
I take it that your understanding of the
8
9
Thank you for the explanation.
statute, which is specifically in the statute, not in the
10
regulations promulgated by the department but in the
11
statute promulgated by the general assembly of the state
12
of Colorado, indicates the notice must be sent separately
13
and not as part of any other shipment.
14
A.
That's what it said.
15
Q.
Your belief is that permits a retailer to,
16
nevertheless, include other materials, marketing or
17
otherwise, in the envelope?
18
A.
I'm not here to interpret it other than to
19
provide my perspective.
20
that a regular shipment would be a shipment of goods.
21
Could be a shipment of a catalog.
22
that would otherwise be sent.
23
think there are a number of things that would provide
24
leeway for things to be included in that notice.
25
Q.
My perspective is I would expect
It should be something
But if it's not that, I
But your assumption in this regard, your
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143
benefits of different efforts all the time, are they not?
2
A.
Absolutely.
3
Q.
Are you aware that there are penalty provisions
4
specific to each requirement of the statute?
5
A.
Yes.
6
Q.
Are you aware that with regard to the annual
7
notice, that the failure to provide a compliant annual
8
notice subjects a retailer to a $10 notice per -- $10
9
penalty per noncompliant notice?
10
11
12
A.
That is part of what the statute reads or the
rules read.
Q.
Isn't it far more likely that retailers
13
evaluating the statute's specific direction that the
14
notice be sent separate from any other shipment, in light
15
of the $10 penalty for noncompliance, will choose to send
16
an annual notice without accompanying material?
17
MS. SCOVILLE:
18
THE WITNESS:
Object to the form.
The numbers used herein
19
reflect no mitigation of the cost, merely a statement that
20
the larger retailers will look to mitigate that cost.
21
no way would I expect that the marginal retailer who
22
barely meets the need and has crossed that threshold would
23
spend a whole bunch of time, energy, and money to try to
24
figure out how to mitigate the cost of 200 notices.
25
Doesn't make sense.
By the time they get done figuring
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Dieter George Gable - November 17, 2010
144
l o u t how to do it, they would have spent more than they
2
would have to just send the notice.
When you bring up Amazon
3
and I don't know
4
what the numbers are -- at some point the threshold has
5
been crossed where somebody will look into it and probably
6
invest the time to get an attorney to look at what is or
7
isn't reasonably possible because the numbers are large
8
enough to map.
9
BY MR. SCHAEFER:
10
11
12
Q.
But if they invested the time and an attorney,
then they will have attorney costs.
A.
For the larger retailers, they'll probably have
13
attorneys doing work all day long.
If I go back to my
14
days at Accenture, the attorney was working doing
15
something or another all day long.
16
for a specific item I asked a question about.
I never saw a charge
So the reality is the small retailers won't
17
18
invest that time and energy because it won't make any
19
sense.
20
possibly, in this area, would invest the time and energy.
21
But, again, on a percentage-of-sales basis to make it
22
meaningful
23
them, it's an insignificant extent amount.
24
25
Q.
The larger retailers that have a lot of costs,
a meaningful measure across the breadth of
Doesn't the $10 penalty substantially raise the
bar for determining that including some other information
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1
2
145
with the notice would be cost-effective?
A.
Again, we're talking about the largest retailer.
3
They may very well ask for an opinion -- or ask for
4
clarification on this or --
5
at those people who are much more sophisticated and have
6
almost no cost for any of the other pieces.
7
address the one that is a consumables production cost if
8
it becomes a large enough number.
9
10
Q.
13
They will
One other aspect to your answer, we're talking
about Internet vendors, by and large, correct?
MS. SCOVILLE:
11
12
None of this report is aimed
Object to the form.
BY MR. SCHAEFER:
Q.
The affected retailers, is it your understanding
14
that most remote sales nowadays -- or remote sellers do
15
business over the Internet?
16
A.
I would say that statistics would support the
17
fact that even catalog retailers have a big move towards
18
the Internet side of the business.
19
20
21
22
23
Q.
Internet sellers tend to communicate with their
customers in electronic means, do they not?
A.
That, certainly I would expect to be part of many
e-commerce vendors' strategy.
Q.
So their strategy is to communicate bye-mail,
24
generally, because, in fact.
25
They are an electronic
vendor?
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1
2
3
A.
146
I would probably say some differentiate
themselves by having nonelectronic communication.
Q.
Isn't it the case that but for this Colorado
4
requirement of sending an annual notice, the vast majority
5
of affected retailers wouldn't be sending a mailing on
6
January 31 of each year to their customers purchasing over
7
$500?
8
9
A.
I would suspect that if given the choice, they
would probably go with -- especially when we're talking a
10
low volume of notices would probably go with an electronic
11
communication if they had their druthers.
12
Q.
Were it to cost a larger vendor 89 and a half
13
cents per notice, their costs -- say they have, in my
14
example, 10,000 notices to send.
15
retailer $8,950.
That would cost that
Is that a fair exercise of math?
16
MS. SCOVILLE:
17
THE WITNESS:
Object to form.
In your
in your example,
18
yes, it's an exercise in math only.
19
extrapolate and say that that is a cost for Amazon to
20
generate sales in Colorado, I don't think that would be an
21
undue burden on the size retailer like that who has lots
22
of other costs to do business anywhere they open up shop.
23
BY MR. SCHAEFER:
24
25
Q.
And that's your opinion.
But if we were to
We're talking, for a
moment, about the cost associated, not necessarily whether
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1
or not the cost is an undue burden in anyone's point of
2
view.
3
compliance?
4
You're here to assess costs, are you not?
A.
You're asking me what the cost is.
Costs of
It may --
5
You can argue dollars and undue burden.
6
bad form of my answer.
7
of sales, it is a much lower issue for somebody of that
8
size retail operation than it is for what we're talking
9
about in this report.
10
11
12
Q.
Okay.
Maybe that's a
But with respect to a percentage
You're not purporting to offer a legal
opinion about the relative burden?
A.
No, not at all.
Only to say that everything is
13
more expensive for a larger retailer who's doing
14
24 billion in business.
15
Q.
While we're on Exhibit A.1 -- and, again, this is
16
informed by the content of Exhibit A within the report,
17
correct?
18
A.
Yes.
19
Q.
Okay.
So, for example, you have in A.1, at the
20
top of your chart, the compliance effort.
21
the effort in terms of hours for different categories of
22
employees or professionals?
23
A.
Categories, yes.
24
Q.
Okay.
You first list
25
And you give, across the various
requirements, an estimate of the number of hours that
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148
1
someone in that category would need to invest for a
2
retailer the size you were evaluating to comply?
3
A.
Yes.
4
Q.
If someone were to draw a different conclusion
5
about the number of hours that this would require, that
6
would have the overall effect in the way you've done the
7
math of increasing the cost if they believed the number of
8
hours was higher?
9
10
11
A.
If you increase the number of hours, that would
increase the cost, yes.
Q.
Likewise, you have, then, a set of information
12
here under the heading Cost (per hour) for each of the
13
categories of professionals or employees that you
14
identify.
15
in that sets of rows, that it's cost per hour?
16
rate of someone in that category of employee?
Is it a fair understanding what the numbers are
The hourly
17
A.
Yes.
18
Q.
SO, for example, just to take the first one,
19
management cost per hour is estimated to be $105 per hour,
20
on average?
21
A.
I don't believe it's on average.
I believe I
22
articulated that's on the high end, based on the high end
23
pay range plus standard benefits and payroll burden,
24
taxes.
25
Q.
By saying "on average," I wasn't intending to
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149
1
imply that it was some middle-of-the-road number.
2
companies would have higher costs, some would have lower
3
costs.
4
here you're using some approximation for all companies?
5
6
7
A.
This is a number that you're using to estimate --
I'm using a high-end approximation for the
companies that we're talking about here.
Q.
Fair enough.
If someone were to conclude that, in fact,
8
9
Some
the hourly rate for any of these categories was higher,
10
that would have the overall impact of increasing the cost
11
estimates, would it not?
12
A.
Yes.
13
Q.
Similarly, with regard to the costs of
14
consumables in the final set of rows there, you have
15
assigned certain costs of consumables.
16
conclude that consumables might be somewhat more
17
expensive, it would have the effect of increasing the
18
overall cost of the annual notice to customers?
19
A.
Although that --
If someone were to
On a mathematical basis, yes.
20
But on a basis that these are already on the high end of
21
these types of consumables,
22
unless it's linen envelopes and hand inscribed.
23
24
25
Q.
I find it highly suspect
That would be nice, wouldn't it?
calligraphy.
A.
Calligraphy.
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Dieter George Gable - November 17, 2010
1
2
150
(A recess ensued.)
BY MR. SCHAEFER:
Q.
3
Okay.
In your report, Mr. Gable, Exhibit 116, at
4
page 13, continuing the discussion that is under the
5
general opinion H, item 4 is the annual disclosure to the
6
DaR.
7
retailer will have to submit a file complying with the
8
Colorado Department of Revenue file layout."
And as you note in subpart a,
That's a fair statement of the law, is it
9
10
"Every affected
not?
11
A.
My interpretation of it.
12
Q.
Yes.
And then in subpart b, you indicate,
13
"For
14
these retailers, for costs for compliance with the Annual
15
Disclosure to DaR Requirement would range from $235 to
16
$470 or 0.004 percent and 0.008 percent as a percentage of
17
gross annual sales."
18
19
Again, those gross annual sales figures are
based on the seller with 6 million in annual sales?
20
A.
Yes.
21
Q.
Your estimate is that a seller with 6 million in
22
annual sales would have -- you estimated approximately a
23
hundred thousand customers.
24
used?
25
MS. SCOVILLE:
Is that the estimate you had
Object to the form.
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Dieter George Gable - November 17,2010
THE WITNESS:
1
2
151
Not at all.
BY MR. SCHAEFER:
3
Q.
Okay.
4
A.
I made no assumption on number of consumers,
5
because I'm not sure that that materially impacted the
6
numbers.
7
number was a -- what I would consider, quote, unquote,
8
worst-case scenario with 200 notices adding up to exactly
9
a hundred thousand dollars worth of sales and barely
10
11
The only place where I stipulated a definitive
meeting the threshold.
Q.
Got it.
Have you ever worked with a -- with a house
12
13
file containing several hundred thousand names in any of
14
the work you've done?
15
A.
Yes.
16
Q.
In what part of your work?
17
A.
Credit card services.
18
Q.
And what kind of work were you doing with that
19
house file in that consultancy?
20
A.
We were handling credit card issuance.
21
Q.
So were these prospects?
22
A.
No.
23
These were existing clients and clients who
needed new cards, replacement cards, so forth.
24
Q.
25
Was it for a financial institution or for a
retailer?
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1
A.
American Express.
2
Q.
Okay.
152
And so what you were doing was managing an
3
effort to reissue cards upon expiration, that sort of
4
thing?
5
A.
It was the entire credit card platform for their
6
very broad set of credit card offerings, everything from
7
the green card to the black card and blue card, their
8
affinity cards, Delta, everybody else.
9
10
Q.
But was it with regard to
These were existing
cardholders receiving new plastic?
11
A.
Everybody.
12
Q.
Okay.
Existing and prospective.
Your estimated listed here in item 4 is
13
if I'm looking at Exhibit A.l,
is driven entirely by time
14
spent by management and a business systems analyst?
15
A.
That is correct.
16
Q.
So, for example, you haven't included any
17
professional time for an accountant or lawyer with regard
18
to compliance with this requirement in the law?
19
20
21
A.
I did not because the requirement is, of all of
these areas, probably the most straightforward.
Q.
Do you think that companies will need to spend
22
time in quality assurance or quality control with respect
23
to the file that they generate for the DOR?
24
25
A.
I think companies should spend time on the
quality of the file irrespective of this requirement, and
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1
the quality of their normal day-to-day operations is
2
153
driving this.
3
Q.
Okay.
To be more clear -- perhaps my question
4
wasn't a good one -- do you think they have to spend time
5
on quality assurance and quality control with regard to
6
the file extract that they need to provide to the
7
Department of Revenue?
8
9
A.
I think they need to properly extract the data.
If the data's bad, that has nothing to do with the
If the data is good,
they need to at least
10
extract.
11
verify that what they extracted is the right information.
12
Q.
They do, in fact, need to spend time verifying
13
that what they have done is extracted the right
14
information.
15
A.
Yes.
16
Q.
And, in fact, again, the file to the DOR has to
17
include not only folks with a Colorado mailing address but
18
also all consumers who have -- who live in other states
19
who have shipped goods into Colorado.
20
A.
21
Colorado.
22
Q.
Isn't that correct?
I believe all-encompassing would be shipped to
Okay.
So it includes customers who do not reside
23
in Colorado who may have delivered goods into Colorado or
24
asked that goods be delivered in Colorado?
25
A.
Absolutely.
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1
Q.
154
Would you agree with me that companies will have
2
a high degree of sensitivity to ensuring that they have
3
provided the proper list of customers to the Colorado
4
Department of Revenue in order that they not turn over
5
information to the department regarding individuals who
6
have not directed that goods be shipped into Colorado?
7
A.
I think their diligence of what they are
8
submitting to the Department of Revenue is going to be
9
reflective of their day-to-day operational diligence.
10
don't think there's any more or less because of this
11
annual disclosure.
12
Q.
I
Well, they don't, for any other purpose, have to
l3
create a data extract of individuals shipping goods into
14
Colorado, do they?
15
A.
The diligence
I'm not talking about that as
16
far as diligence.
17
accurate and so forth,
18
operations?
19
on a day-to-day basis, they're not suddenly going to spend
20
more time on this.
And it's right or wrong, but I think
21
that was my point.
Their day-to-day diligence will be
22
reflected in the quality of what they're SUbmitting either
23
to DOR or submitting as part of their other business
24
disclosure requirements.
25
Q.
I'm saying that if they want to be
that's part of their day-to-day
If they ultimately -- we'll call it wing it
I think what you're talking about is companies
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155
1
that are careful to maintain their customer information do
2
so in a manner that they try to make sure that it's devoid
3
of mistakes, that it has the proper mailing address, that
4
they have -- the information is correct and well
5
maintained?
6
A.
Yes.
7
Q.
What I'm talking about is a separate issue.
8
Certainly how well they maintain their data may provide a
9
degree of additional reliability with regard to any
10
extract they take.
Once they've taken an extract, would
11
you agree with me that a company, especially one that was
12
careful with its customer data, would invest time in
13
quality assurance and quality control to make sure that
14
the data that they were turning over to the Colorado
15
Department of Revenue was the only data that was required
16
and not data regarding individuals whose information need
17
not be submitted?
18
A.
Yes.
19
Q.
Would you agree with me that consumers in
20
general, in today's electronic commerce environment, have
21
a high degree of sensitivity around the privacy of their
22
information -- their personal information?
23
MS. SCOVILLE:
24
THE WITNESS:
25
generalization.
Object to the form.
I think that's a
I would argue that some people transact
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159
1
the protection of the credit card or payment information
2
from a consumer through the order process and retention
3
and handling of that information.
4
5
Q.
You're aware, are you not, that companies must
undergo an audit with regard to their PCI compliance?
6
A.
Once they reach a certain size, yes.
7
Q.
And, in fact,
8
it's viewed as being important by
companies that they successfully complete such an audit?
9
A.
Yes.
10
Q.
SO the changes with regard to their handling of
11
customer information, whether or not it actually dictates
12
any new measures to remain in PCI compliance, would you
13
agree with me that they may cause a retailer to review
14
their PCI compliance?
15
MS. SCOVILLE:
16
THE WITNESS:
Object to the form.
I don't believe any handling
17
of the information talked about within here would at all
18
make a retailer look at their PCI compliance.
19
BY MR. SCHAEFER:
20
Q.
Opinion L on page 15, you indicate,
"Requirements
21
will not materially impact the call volume for customer
22
inquiries regarding Transactional Notice."
23
Did I read that correctly?
24
A.
Yes.
25
Q.
I assume that you're not saying that you expect
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